Saturday, March 15, 2008

Anti-Discrimination Blow-Back

No discrimination here... none whatsoever

We've blogged many times about the damaging emphasis on race and gender targets across the public sector (see the annual report of any public body- eg the London Drivel Agency). While the intentions may be noble, the consequences are usually dire- underperformance, incompetence, and much, much worse.

But that may be nothing compared to something Mr Dale has just posted from the US: a gripping piece from the New York Post argues that the entire US sub-prime loans crisis is largely down to a half-baked anti-discrimination measure.

In this case, US banking regulators convinced themselves that non-whites were being disciminated against in obtaining mortgage loans. They therefore put pressure on commercial lenders to meet race targets in making home loans. Iain links the NYP article, and here's how the Fed set out its approach in an Interagency Policy Statement on Fair Mortgage Lending Practices on October 9, 1992:

"Increasing evidence indicates that differences in loan-approval rates between white and minority home mortgage applicants, apparently unwarranted by economic factors, characterize some lending...Enforcement-Oriented Analysis ...If statistical analysis--or follow-up review of applications and loan files--yields reliable evidence indicating loan decisions by particular lenders were based on race or ethnicity, that information will be forwarded to the Department of Justice...The agencies are continuing to emphasize the need for examiners to... identify institutions that should be subjected to follow-up procedures to ensure fair lending practices. Where appropriate, examiners are conducting detailed reviews and comparisons of loan and application files as part of fair lending examinations.

New computer programs and analytical tools are being developed to... help identify geographic and other discrepancies in mortgage lending that may suggest further inquiry."

Message to lenders: make sure you bend over backwards to fill your minority loan quota or you can expect a visit from the Feds.

Was that responsible for the sub-prime defaults and today's credit crunch?

On it's own, maybe not. But once it got coupled up to the slice and dice structured finance industry, greed was always ready to do the rest.

BOM the book now available

Drawing on six years of blogging government waste, this book shows how we spend far more than we need on our public services. It sets out the facts and explores the underlying issues. Just why does government spend so much and deliver such second rate service? Why do we put up with it? And what are the alternatives?

ABOUT BOM

Despite all the talk of cuts, government still consumes nearly half our national income. Yet many tens of billions of its spending is wasted, with taxpayers made to pick up the tab for a depressing array of overpriced sub-standard services. This is money we can no longer afford, and our National Debt is already at danger level.

If we're to avoid further decades of stagnation and austerity we urgently need to find another way. Exposing and understanding the wastefulness of government is a necessary step in the right direction.